In its submission to Treasury’s consultation on combatting financial abuse perpetrated through coerced directorships, the Financial Advice Association Australia (FAAA) said the difficulty in identifying this particular type of financial abuse makes it a tough issue to address.
“Many victims may not even realise that they have been appointed as a director, or they may not understand that this mechanism is being used as a means of financial abuse against them,” the FAAA said.
“Such abuse within familial relationships, where trust is implicitly granted, is particularly challenging to identify.”
According to the association, financial advisers can be “uniquely positioned to recognise signs of financial abuse” given their close relationships with clients.
“This can include sudden changes in financial behaviour, unusual account activity, or a client’s confusion about their finances,” the submission said.
“We acknowledge that financial abuse through coerced directorships crosses multiple regulators and jurisdictions and has specific issues that need to be carefully considered.
“To ensure victims can be protected and helped, clear guidance on handling suspected abuse through directorship cases, including how to approach the client, who to report the abuse to, and what legal protections are available for both the client and the financial adviser, are necessary.”
As a member of the Financial Abuse in Business Advisory Group, which also provided a submission to the Treasury consultation, the FAAA said it supports those recommendations, including expanding reforms beyond company structures to include trusts, ABNs, partnerships and SMSFs, as “perpetrators exploit multiple business structures, not just companies”.
It also backed stronger safeguards in director registration and company processes, creating “trauma-informed pathways” for the removal of coerced directors and Director Identifications, and the introduction of standalone legal defences and extending timeframes for Director Penalty Notices.
The submission also recommended actions to ensure perpetrator accountability through enforcement and the use of existing laws that allow prosecution for false statements to ASIC, shadow director liability, and phoenix activity.
It added that increasing funding for government agency specialist teams to investigate and prosecute perpetrators, as well as “significant investment” in specialist support services for victim-survivors, was a key way to address the issue.
In addition, the FAAA called for a clear and accessible reporting mechanism for financial abuse through directorships, a public awareness campaign on financial abuse through directorships, and the creation of a central source of training, information and support for affected people, including the financial professionals who can be the ‘frontline’ in identifying this type of abuse.
The consultation is part of a broader push across government agencies to address financial abuse.
Responding to the Australian Taxation Office’s consultation paper on its vulnerability framework in July last year, the FAAA noted the need for clarity around how the profession can handle the issues when they arise.
Though expressing concern for all financially vulnerable individuals, the FAAA drew particular attention to those facing financial abuse.
According to the Australian Bureau of Statistics, 16 per cent of women and 7.8 per cent of men will experience financial abuse in their lifetimes.
“Financial advisers are uniquely positioned to detect signs of financial abuse,” FAAA general manager of policy, advocacy and standards Phil Anderson said at the time.
“[This is due to] their close relationships with clients and their families,” he added, highlighting the need to end what the FAAA called a “serious and insidious form of domestic and family violence”.
According to the FAAA’s submission, members had noted in response to the earlier parliamentary joint committee inquiry into financial abuse that the financial services industry lacks guidelines and protocols on handling cases where abuse is identified.
This includes how to approach clients, who to report abuse to and what legal protections are available for both clients and advisers.
“Despite the lack of guidelines on how to respond, the FAAA suggests that all participants in the financial system should be alert to victims of financial abuse,” Anderson said.
